Investment in India

Investment in Real Estate in India

Indian real estate has huge potential in almost every sector especially commercial, residential, retail, industrial, hospitality, healthcare etc. However, the major real estate developments in India are mainly the townships, residential units, shopping malls, offices, retail stores and commercial complexes.

The major growth has come due to increasing purchasing power, favourable demographics, existence of customer friendly banks & housing finance companies, professionalism in real estate and favorable reforms initiated by the government to attract global investors.

Real estate investment in India is primarily a long term investment providing low liquidity to an investor. Investors can look at renting out their property to bring consistency in revenues. This can also reduce the burden of EMIs for a property purchased on a loan. According to a survey conducted by ASSOCHAM, 65 per cent of working individuals prefer real estate as a mode of long term investment.

There are many banks and financial institutions that provide loans at attractive rate of interest to the builders. For example, HDFC Property Fund, Kotak Mahindra Realty Fund, and India Advantage Fund (ICICI), provide the funds for real estate development to the builders and developers for construction.

NRI real estate business is also on the rise in India. Recession had negligible impact on this sector. Therefore, the sector is opening up more and more investment opportunities for both domestic as well as foreign investors. The real estate sector is extremely a profitable venture, as the profits of investors have almost doubled or have derived 100 per cent profits in the residential segment.

The preferable time horizon for investment in real estate is four to seven years for better returns. The industry is popular for providing the second largest employment just after agriculture. One of the major reasons for this development is the policies taken by the Government of India.

Reforms initiated by the Indian Government

The Government including reserve bank of India (RBI) and Foreign Exchange Management Act (FEMA) has liberalised the rules and regulations for the NRIs to make investment in real estate. India has emerged as a top-most favourable destination for foreign direct investment (FDI) in the world with 100 per cent relaxation of FDI regulations in real estate.

The Government of India has now allowed international and domestic companies to operate real estate funds through private equity funding. RBI has also decreased its rate of interest in the home loan division.

Tax Advantages

People can avail the huge tax benefits on investing in real estate:

• Tax exemption is available on re-investment of sale proceeds of property in eligible possibilities.
• Tax benefit is available on interest on housing loan raised in India.

Nowadays, real estate investment in India is more productive and revenue generating in comparison to other businesses. India is a safe investment destination for real estate sector with assured returns of 10 to 12 per cent.

FDI in Indian Pharmaceutical Market

The pharmaceutical industry in India is one of the largest and most advanced among the developing countries. The industry stands third in the world in terms of volume. It ranks 14 in terms of value and is expected to grow 8 to 9 per cent annually. According to a research done by Associated Chambers of Commerce and Industry (Assocham), the Indian pharma industry is expected to reach US$ 20 billion by 2015, making it one of the world's top 10 pharmaceuticals markets.

In India, there are many small sectors, medium sectors, private limited companies and public companies that have been consistently manufacturing various medicinal products to meet the increasing demands of the people. The foreign investors can invest in Indian companies through the purchase of shares, debentures, equities, or bonds from an Indian company.

Pharma industry in India is growing at a rapid pace, marked by a number of mergers and acquisitions and growth in foreign expenditure. The sector is going to be a major area of focus in the coming years as Indian medicines are increasingly becoming popular in many developed and developing countries because of the cost effectiveness and easy availability.

India saw FDI inflow of US$ 341.49 million in the drugs and pharmaceuticals sector between April 2009 and February 2012. Also, the government has liberalised investments made by registered Foreign Institutional Investors (FIIs) under the Portfolio Investment Scheme (PIS) from April 10, 2012. Earlier, these spendings required approval from the government.

There are numerous ways for foreign company to enter in to an Indian market. Different types of foreign investment in India are:

Green field investment is FDI when a company establishes a subsidiary in a new country and starts its own production. It involves construction of a new plant, rather than the purchase of an existing plant or firm. According to the latest rules of Reserve bank of India (RBI), FDI, up to 100 per cent, under the automatic route, is permitted for green field investments in the Indian pharmaceutical sector.

Brown field investment is FDI that involves the purchase of an existing plant or firm, rather than construction of a new plant. For e.g. many host countries encourage the formation of joint ventures, as a way to build international cooperation. Joint venture is an equity and management partnership between the foreign firm and a local entity in the host market. FDI, up to 100 per cent, under the government approval route, is permitted for brown field investments in the Indian pharmaceuticals sector. Under the new rules, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB) for any merger or acquisition.

In India, the cost of setting up research and development laboratory, scientific equipments, administration costs, transportation cost, raw materials cost and licensing procedure is much less when compared to any developed countries. The main determinants of FDI in India are availability of huge natural resources, cheap labor, steady economic growth, huge benefits and concessions granted by government, increasing population and per capita income, etc. So, there are huge opportunities for foreign investment in India.

Investment Scenario in Indian Market

The process of reforms as part of liberalization has resulted in greater investment in Indian market. In today's economy of less income growth and highly increasing cost of living, one has to know how to use his/her savings to generate higher returns. Availability of too many options and no clear idea about these choices is creating a hostile situation for the investor to choose the best among the available alternatives.

An investor has several investment alternatives (such as stocks, bonds, precious metals, etc.) to choose from, depending on his risk profile and expectation of returns. Different investment substitutes represent a different risk-reward trade off. Low risk investments are those that offer assured, but lower returns, while high risk investments provide the potential to earn greater returns. Hence, an investor can choose the most suitable investment on the basis of his/her risk tolerance.

Best investment options in India

Some of the investment alternatives available in the Indian investment market are:

• Investment in Fixed Deposits- FD is one of the safe investment options with the current annual rate of interest of 10 per cent.
• Investments in Insurance- Insurance-cum-investment options like unit linked insurance plan (ULIPs) are beneficial for the investors. Insurance offer quality services to cover life, money and assets along with low-risk profits.
• Investment in Mutual Funds- People may select mutual funds as an investment alternative on the basis of long term performance, short term performance, consistent returns, etc.
• Investment in Equity- Private equity as an investment substitute is growing fast in India. With a business of US$ 20 billion in 2010-11, the share of equity investments is expected to increase in coming years.
• Investment in Public Provident Funds- PPF is a government guaranteed fixed income security with a minimum amount of Rs 500 and maximum of Rs 1, 00,000 in a financial year; PPFs are now a popular choice of investment in long run.

Points to be considered before taking investment decision

Risk – It is important for the investor to choose the investment option on the basis of his/her risk profile. For e.g. - A low risk investor should not invest into equities. He should look for the safe option for investment. Risky asset class causes a loss of principal.

Liquidity – Liquidity is also an important criterion for the selection of Investment Avenue. For e.g. - An investor should not invest into public provident fund (PPF), if he needs money in 3- 4 years time frame. PPF has minimum lock in period of five years.

Time horizon – Investment should be done by considering the specific time horizons. For e.g. - For short term investment, mutual fund or fix deposit could be a good option, where as for long term, real estate and regular investment into equities could be a good option.

Taxation – Taxation affects the real returns of investment, investor should always look at the tax aspect of any investment before investing into it.

The scope for business in India is vast. Indian economy has grown as one of the significant economies in the world having immense potential towards long-term growth. The growth has been backed by the various industrial sectors to a great extent. The sectors mainly include technology, manufacturing and service industry.

Business Opportunities in HealthCare Market in India

The healthcare sector in India is growing fast. The sector is currently estimated to be worth US$ 65 billion and is expected to reach US$ 100 billion by 2015, according to the rating agency Fitch. The growth in the sector comes due to- increasing population, growing lifestyle-related health issues, economic treatment, rising incomes, government initiatives, etc.

India is the first country to have a large number of multinational healthcare providers. This rapidly developing industry in India has led to a qualitative shift in patient demands. This has resulted in centers of medical excellence developing and acquiring the latest medical equipment to treat their domestic and international patients.

Due to the development in the rural areas, people even in the villages are now become more conscious about their health issues. They are opting for more health benefits for safe and diseases free existence. This will create huge investment opportunities in the sector.

Opportunities for investment in Healthcare

Healthcare infrastructure: A huge amount of private capital will be required in the coming years to meet infrastructure needs of healthcare in India. An additional 2 million beds are required for India to bridge the gap and prepare for demand estimations in 2025. The government is expected to contribute only 15-20 per cent of the total, providing a vast opportunity for private players to fill the gap.

Diagnostic & Pathology Services: High cost difference in India allows for outsourcing of pathology and laboratory tests by international hospital chains

Telemedicine: There is a vast opportunity for investment in telemedicine as it provides rural areas access to better quality healthcare.

Medical tourism: Medical tourism in India has also received a boost with the arrival of patients from different countries. According to industry estimates, the market size of medical tourism is estimated to be around US$ 2.5 billion and is growing at over 25 per cent per annum. Hence, create enormous investment opportunities in India.

Contract Research: Contract research is a rapidly growing segment in the Indian health care industry. Foreign players are entering into contract research to reduce their operational and clinical cost.

Health Insurance: Increasing healthcare cost and burden of new diseases along with low government funding has raised the demand for health insurance coverage. Less than 15 per cent of the Indian population is covered through health insurance. With the increasing demand for affordable quality healthcare in India, the penetration of health insurance is poised to grow rapidly in the coming years.

Major Growth Drivers

• 100 per cent FDI is permitted for all health-related services under the automatic route.
• Lower tariffs and higher depreciation on medical equipment.
• Income tax exemption for five years to hospitals in rural areas, Tier II and Tier III cities.
• Increasing penetration of health insurance.
• High-growth in medical tourism.

India: Hotspot Investment Destination for Foreign Investors

India is the largest democracy in the world. It ranks second in terms of population. The policy of liberalization has transformed the prospects for the Indian economy. Today India is one of the favorite destinations for global investments. The major investors in India are Mauritius, Singapore, the US, the UK, the Netherlands, Japan, Germany, etc. Foreign direct investment (FDI) in India went up by 31 per cent to US$ 27.5 billion last year. The sectors that attracted maximum FDI last year include services (financial and non financial), telecom, housing and real estate, and construction and power.

The government has come up with several incentives like import of capital goods at concessional customs duty, liberalisation of external commercial borrowing norms, tax holiday to encourage investments, etc. "The government should allow 100 per cent FDI in sectors like domestic airlines and insurance sector to boost inflows and generate employment, "as per Rajiv Kumar, Secretary General, FICCI. Sectors like automobiles, chemicals, food processing, oil and natural gas, petrochemicals, power, services and telecommunications have witnessed tremendous investments.

Investment options in India

There are number of options available for foreign investment in India for both short term and long term. The major options are real estate, bonds, mutual funds, money markets, gold, and financial assets (non-marketable, LIC policies & equity shares). Today, there are businesses and industries that are even 100% open for such investment. Some of the sectors that are still not open for foreign investment include, rail transport, lottery business, tobacco business, certain agricultural activities, atomic energy, mineral oils, etc.

Who can invest in India?

There are following categories of non-Indian resident who may invest in the capital of Indian Company:

• A non-resident entity (other than citizen of Pakistan)
• A citizen or entity of Bangladesh under Government route.
• NRI resident as well as citizen of Nepal and Bhutan on repatriation basis.
• Sebi registered NRIs through a registered broker on recognised India stock exchange.
• Foreign venture capital investor registered by Sebi.
• An FII (foreign institutional investor) may invest in the capital of an Indian company under the portfolio investment scheme.

Business Opportunities in India

There are various factors that create favorable business opportunities in India are:

• There are huge business opportunities in Indian retail sector as people have become more conscious about branded products. Improvement in purchasing power and huge middle class population results in the growth of the economy.
• India's competitive advantage in information technology can be used to enhance productivity in industries.
• Availability of large number of technical manpower has led to the expansion of manufacturing base across different industries.
• India's rich natural resources, availability of better infrastructure, well established banking system, better agriculture, etc. have created more investment opportunities.
• The capital markets in India are one of the fastest growing markets in the world, attracting huge investments from foreign institutional investors.
• The economic reforms have brought in policy changes in terms of freedom of entry, investment, location, usage of technology, import and export. These changes have created an investment friendly environment.

Investment Scenario in Indian Power Sector

Indian power industry has a long way to go. India’s fast-paced economic growth and its rapid rate of industrialisation and urbanisation have fuelled an increased demand for energy.

India has made remarkable progress in the power sector during the eleventh plan. The sector ranked sixth among the leading sectors of the Indian economy and has attracted US$ 4.6 billion in foreign direct investment since 2000. There are three major pillars of the sector - generation, transmission, and distribution. Generation is further divided into central sector (Public Sector Undertakings), state sector, and private sector, which constitutes total installed capacity of 31.21 per cent, 47.49 per cent and 21.17 per cent respectively.

Investment in Power Sector

With the population increasing at a rapid pace and a wide gap between demand and supply, the Indian energy sector offers strong opportunity to industry participants. After China and the US, India has been ranked as the third best investment destination in renewable energy sector.

The power sector in India requires an investment of up to US$ 400 billion in a span of five years to end on March 2017, according to P. Uma Shankar, Secretary, Ministry of Power, India.

The organised trading business in energy sector is set to be opened up for NRI invest in India. This attracts foreign funds to invest in the Indian power industry. 26 per cent FDI will be allowed at par with the level of commodity exchanges in the sector.

Investment Opportunities and Future Prospects

If India continues to grow at the current rate, the Indian economy would emerge as the second largest in the world, next only to China, by the year 2050. It is therefore expected that, the demand for energy would also rise substantially in the future.

US companies investing in India's green energy market will have good prospects and it will be a win-win situation for both the countries.

The generation capacity of the country stands at over 180 MW (as in August, 2011) with a dominant share of the state sector. The private sector, which currently contributes around 22 per cent of the generation capacity, is expected to increase its share to 52 per cent by 2017.

Government Initiatives

Indian Government has proposed various proposals in the budget 2012 to stimulate investments in power sector in India, which provides a massive opportunity to the American companies.

In order to attract NRI invest in India, FDI up to 100 per cent is permitted under automatic route for projects of electricity generation (except atomic energy), transmission, distribution and power trading.

The Government of India is working on the plan to generate 470 gigawatts (GW) of nuclear energy by 2050, announced in 2009. Thus, it opens the door for huge opportunities in the sector.

The Government has planned to set up four solar thermal power projects through the solar energy corporation of India.

Being one of the fastest growing economies and the second largest populated country, India represents an attractive investment destination for the power industry.

Increasing Investment Opportunities in India

India has become one of the fastest growing economies. Investment growth is eventually linked to the growth of the economy. So most of the investors look for emerging markets like India, where the growth rate is higher than the developed economies. Investing in India is becoming a big attraction for the foreign investors especially due to the booming Indian economy.

Every individual wants to invest his/her money in the right means. There are various wonderful investment options in India. The challenge is to find out the right option that can not only offer flexibility, but also provide good returns in the future.

Top investment options in India

Bank Fixed deposits (FD)
This is considered to be a safe investment and generates stable income. The minimum tenure of FD is 15 days and maximum 5 years and above. Senior citizens get special interest rates on fixed deposits. The period of ideal investment is 6-12 months.

National Saving Certificate (NSC)
It is one of the safe investment options in India backed by government. The lock-in period is 6 years. Minimum amount required is Rs100 and there is no upper limit. Since the NSC comes under section 80 C, it also entitles the individual to get tax deductions up to Rs 1Lac

Public Provident Fund (PPF)
PPF is also monitored and backed up by the government of India. A minimum investment of Rs 500 and maximum Rs 1, 00,000 is required to be deposited in a fiscal year. This includes fixed-income investment for high tax payers with low risk. Any individual in India can invest in this scheme and can earn a handsome tax free return. The lock-in period is 15 years and the interest rate is 8.8 per cent calculated annually.

Stock market
Investing in share market is another investment option to get more returns. But share market investment is volatile to market conditions. Investing in the stock markets potentially yield higher profits.

Mutual Funds
Mutual Fund companies collect money from investors and invest in share market. Investing in mutual funds is also subject to market risks but return is good.

Other investments
There are various other options for business investors in India like real estate, gold and private equity available in the country. One needs to be sure of the authenticity of the organisation, interest rates, benefits and conditions before investing.

Foreign Investment in India

Foreign direct investment (FDI) in India is possible through automatic route (which does not require any approval) and government route (which requires approval).There are set of guidelines provided by the Reserve Bank of India (RBI) and Securities and Exchange Board of India (sebi) for NRI investment in India.

The government of India has created a favorable climate for foreign investors like tax exemptions, benefits from the state and central government bodies, etc. A foreign company could invest in India either by having a wholly owned subsidiary i.e. by having a joint venture with an Indian company or by having a branch office.

There are various investment options and opportunities available in India. However, it is important to invest in that instrument which suits the individual in terms of investment amount and risk.

FDI is a source of Indian Economic Growth

India is developing into an open-market economy. It is the fourth preferred destination for foreign investment just after the United States, China and Britain. India attracted overseas investment of US $8.1 billion in March, the highest ever monthly inflows. Cumulative FDI inflows for the fiscal 2011-12 amounted to US $36.50 billion.

The Indian economy has continuously recorded high growth rates and become an attractive destination for investment. Government offers various facilities to non-Indian resident to attract foreign investment in India. The factors that attract investment in India are stable economic policies, availability of cheap and quality human resources, and new unexplored markets. The government has taken various initiatives like - allowing foreign education providers to set up campuses in India, FDI in limited liability partnership firms, etc.

Impact of FDI on Indian economy

Foreign direct investment in India has enabled the country to attain a certain degree of financial stability and economic growth with the help of investments in different sectors. After liberalization of trade policies in India, there has been a positive GDP growth rate in country’s economy.

Foreign investment in India helps in developing the economy by generating employment, generating revenues in the form of tax and incomes, development of infrastructure, backward and forward linkages to the domestic firms for the requirements of raw materials, tools, business infrastructure, etc.

How to make FDI in India

Foreign direct investment in India is permitted in the form of financial collaborations, joint ventures, technical collaborations, capital markets and private placements.

Foreign investors are free to invest in India except few areas. There are some activities and sectors which require prior approval of Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB) for e.g. manufacture of cigarettes and tobacco, manufacture of electronic aerospace and defence equipments, manufacture of items exclusively reserved for small scale sector with more than 24 per cent overseas investment and all other proposals falling outside notified sectoral policy.

The foreign investors can invest in India in two ways:

Incorporation of an Indian company: The foreign investor can set up a separate legal entity in India under the provisions of the Companies Act, 1956. The foreign investors can invest in such Indian company up to 100 per cent of capital based on sectoral guidelines specified by the Government of India.

Unincorporated entity: A foreign company can operate in India, by establishing a Branch Office of the other place of business (foreign entity), subject to conditions and activities permitted under the Foreign Exchange Management Regulations.

Who can invest in India?

A non-resident of India (other than a citizen of Pakistan or an entity incorporated in Pakistan) can invest in India, subject to the FDI Policy under automatic or government route plans.

Qualified financial Investors (QFIs) are permitted to invest through SEBI registered Depository Participants only in the equity shares of listed Indian companies through recognised stock exchanges in India under various SEBI guidelines.

Foreign institutional investors are allowed to invest in the capital markets in India through the portfolio investment scheme (PIS). Under this scheme, FIIs can acquire shares or debentures of Indian companies with the help of stock exchanges in India.

Investment Opportunities in Indian Education Sector

India has the third largest education system globally, after China and the US, with one million schools and 20,000 institutes for higher education. The common man's dream of making a better life for himself has made him focus more and more on education. Due to rising income level in India, middle class is focusing more on providing quality education to their children.

The education sector is divided into two main segments; the core segment comprises of schools and higher education, while the non-core comprises of coaching classes, pre-schools and vocational trainings.

There is a huge demand-supply gap in the Indian education sector. This has attracted many private players to invest in education and training institutions with the aim of making the candidate employable by training them in the right courses.

Importance of Private Investment in Education Sector

Education sector in India is finding it increasingly difficult to cope with the rising market demands and competition from global educational institutions due to low investments. It has become very imperative to have increased private investment to improve the infrastructure. The sector offers opportunities to increase capital because education still lacks good-quality infrastructure in the country and investors have the opportunity to build it. So, it is very beneficial to invest in Indian education sector for the private players.

Private Equity Investors have already started investing in educational projects due to increasing demand trend. India’s private banking giant HDFC (Housing Development Finance Corporation Limited) has confirmed that Private Equity investment have seen a tremendous growth since year 2005. HDFC has announced strategic plans to enter the education sector in India and approved an investment of 100 crores.

Government Initiatives

Initiatives taken by the government for the infrastructural development of education sector are:

• Rise in budget allocation for education sector by 17% i.e. Rs 150 crore for establishing new IITs and IIMs in India.
• A proposal was proposed for setting up 6000 schools at block level as model schools in the 12th Five Year Plan.
• Fund of Rs 1000 crore has also been allocated to National Skill development Fund as an initiative.
• Provide incentives to private sector for creation of infrastructure for higher education
• The government initiated measures to establish four regional centers of Indian Institute of Mass Communication (IIMC) to promote excellence in journalism.
• The Budget provisions earmarked for education of girl children should be enhanced from Rs 1,265 to Rs 3,000 in 2012-13.
• The allocation of Rs.636215 crore to UGC (University Grants Commission) which involves the finances for deemed and central universities across India.
• Survey by apex industry body, ASSOCHAM, predicts an investment of Rs. 4,500 crore over next three years
• To increase the IT spending from an estimated $356 million in 2008 to $704 million by 2012, reflecting in a Compounded Annual Growth Rate (CAGR) of 19 percent during 2007-2012

India becoming NRI’s Favorite Investment Destination

India is the fourth preferred destination for FDI just after the United States, China and Britain. Government offers several facilities to Non Resident Indians (NRIs) to attract foreign investment in India.

NRIs are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, NRIs can acquire shares/debentures of Indian companies with the help of stock exchanges in India.

The growth of nation comprises of various amendments of acts and policies, investment favorable taxation and other documentation process for starting a company, availability of human resources, etc. All these factors attract NRIs investment in India. The two most attractive features of the Indian market are high potential of the domestic market driven by an emerging middle class and cost competitiveness.

Investment Options

The RBI allows Non Resident Indians to hold accounts in Indian banks as business investors in India. There are different types of saving and deposit investment schemes based on the type of account. Joint holding is also allowed in these accounts subject to certain limitations. This can be a good investment option for NRIs who have parents or blood relatives in India.

RBI has also granted general permission for NRIs investment in India, who are willing to invest money in shares of growing companies in India. They have an option to invest in mutual funds, fixed deposits, shares and debentures of companies, etc. The limit of investment, type of company and few other factors are subject to regulations of RBI and SEBI.

The NRIs are also allowed to invest in Government securities and National Savings Certificate. They can also convert their money into property (except the agricultural land), so that it remains as a security on long term basis while the value of the investment grows with time.

Benefits for NRI Investors:

• Taxation policy in India has been changed to favor NRIs to invest in India
• Various provisions have been made to benefit NRIs
• Loans are provided to NRI against deposit schemes to construct homes in India
• With advancement in technology, mode of transaction has leaped a step ahead through demat accounts, internet banking facility etc.

Major Points for Investment:

• NRIs can directly invest in the Indian companies equity market using their own demat account or broker account.
• They can deal with only one bank at a time.
• NRIs can trade only in delivery-based transactions. Intraday trading (buy and sell on the same day) is not allowed for them.
• They will be allowed to invest only up to 5 % of the paid up capital of the company.
• NRIs need to have 100% funds at the time of buying. No exposure is given to NRIs.
• They need to have 100% stock available to them while selling. No short selling allowed.

It is very important to choose the best broker for NRIs investments in India. So that, all the NRI services that are to be availed are of high quality.